Good morning. The market took a breather yesterday. Stocks and rates were stable. Unhedged does not expect the calm to last. Email me: robert.armstrong@ft.com.
ValuationHere’s a nice dumb question: shouldn’t the US stock market be cheaper?
Here is a chart of the forward price/earnings ratio of the S&P 500 since before the crisis. You will notice that, on this metric, the market became 20 per cent cheaper during this year’s sell-off. The market P/E has gone from 22 to 18 (Most observers seem to think forward earnings estimates need to come down a bit, so this chart may exaggerate the decline in valuations a bit).
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